Common misconceptions about investing that everyone seems to fall for. - Seedly
Seedly logo
Seedly logo


Common misconceptions about investing that everyone seems to fall for.

I really want to talk about this.

Today, I’ll be approaching the most common misconceptions about investing that I really want to talk about, from a more scientific/rational approach. We can avoid regretting our decisions, an emotional turmoil, or even a financial disaster.

Misconception 1: DIY (i.e stock picking) performs better than investing in a portfolio of ETFs

I quote:

“A low-cost index fund is the most sensible equity investment for the great majority of investors."

“By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals,”

– Wauren Buffet, from Business Insider

Despite wisdom from the world’s most famous investor, the reason why the idea that “DIY outperforms index fund investing” is so rampant can be due to 3 reasons.

Survivorship bias

All the “financial gurus” or investors (not referring to traders here) out there showing their realised profits that grew 100% in 6 months. Just by sheer mathematical probability, that person who outperforms the market is unlikely to be you or me, and we are sold hopes and dreams by the minority that actually took on more leverage than one normally would.

A reminder to ourselves: Just like social media and every other type of marketing, people only show you what they want you to see. It is basically a highlight reel without context, without proper breakdown of the risk they had undertaken, nor the emotional ups and downs of the journey. Also imagine if someone had a portfolio with net losses, would they reveal their “secret”?

There are also those that put in tons of research and then having the confidence/courage to enter the market at the right valuation with the right resources (when opportunity meets preparation). This ain’t easy, even for professionals, much less for us retail investors, and more elaboration in my next point.

Hindsight bias

People show you that 1 or 2 stocks they bought that returned 1000% over 10 years, hence convincing themselves and others that they can beat the market. What about all the other stocks in their portfolio? Do they know it was going to “under-perform”? Do they know they are going to lose money at some stocks? If so then why did they still buy it in the first place?

In addition, even when opportunity meets preparation, we would never know if we had made the right choices. It is only on hindsight that “correct” decisions are verified with outcomes.

Superiority bias

People think they are above average, hence why settle for ETFs when they can DIY and earn extraordinary returns right? If everyone thinks they are above average, then who exactly is average?

DIY only gives us a POSSIBILITY of extraordinary returns (let me benchmark that using the S&P500).

When we do research, we are DECREASING the probability of investing in sub-par companies.

Whereas investing in a portfolio of ETFs, we are capturing a larger basket to INCREASE the probability of getting a multi-bagger.

Misconception 2: Investing in Robo-advisors/ETFs = passive investing = you don’t need to put in effort, do any research, or understand financial terminologies

A few questions to get us started:

(1) How would you know which robo-advisor has the best/least complicated user experience?

(2) Do you want to receive dividends on a regular basis from your investments or are you aiming for long term growth? If so which robo-advisor’s products are more suitable for your own goals?

(3) Which robo-advisor provides the best customer service should something go wrong?

(4) Which ETF has the lowest total expense ratio (TER)?

(5) What is total expense ratio and how does it affect your investment returns?

(6) Are all ETFs the same?

You get the point. Even “passive” investing requires us to put in some effort, to do our own due diligence and homework before we make informed decisions and not regret our choices a few years down the road.

To understand more about the types of ETFs and which ones make the most sense for SG retail investors, The InvestQuest’s article is by far the best I have read.

Misconception 3: You should start investing as early as possible

In investing, we all make mistakes. And when we make mistakes we lose money. However when that happens, we still want to go on with our daily lives and sleep soundly at night, and not worry about waking up and having no backup plan when things go south. In essence, before we jump into the deep end of the pool, building a financial safeguard, a safety net, is GOD DAMN IMPORTANT. This is so that should things not work out, we have something to fall back on.

These are the steps I took even before putting in any money into investments:

(a) saving emergency funds/ 5-6 months of salary

(b) put those savings into a high interest rate cash management/savings account(s)

(c) clearing any outstanding debts (if applicable)

(d) getting myself adequately covered via insurance

(e) setting a budget and GETTING USED to the budget

(f) tracking my expense, adjusted my budget, and then continued to track

Clean up and sort out the basic stuff first, investments can come later. When you sort out the basic stuff, you also gain financial literacy in the process.

After that, in fact like many others who embarked on their investing journey, I actually started with RSP (regular savings plan) into Nikko AM STI ETF at $100/month. This is by no means a recommendation or an advice, but from personal experience, I have never regretted it. This is because the one thing that RSP has helped me was to actually get my skin into the game, which was the fastest and best way to learn and grow. I was taking small steps one at a time, minimizing financial consequences as much as possible.

By having that peace of mind knowing you have a financial safety net to fall back on, while acknowledging that investing itself is a journey of learning, experiencing, and understanding more about ourselves, we can then grow our wealth without losing our health :)

Takeaway whatever you find useful and leave a comment down below on your take on this!

*This is only for educational purposes and not meant to be a financial advice. Please do your own due diligence, and as always, past performance does not guarantee future results. If you require help with your finances, please approach a financial advisor.​​​




1d ago

Hey Casey, really enjoyed reading this! Particularly 'GETTING USED to the budget'! I think that's something a lot of people miss out on, including myself (still not used to the budget HAHAHAH)! Thanks for sharing! Hope to see more of your opinions!! :)
Andy Chan

Andy Chan

20h ago

Great read!